In this year’s Pre-Budget Report, the Government announced its intention to consult on simplifying the VAT system. One of the areas being considered is the election to waive exemption from VAT for various property transactions: the option to tax. The effect of the election is to turn what would have been an exempt supply into a taxable, standard-rated supply, in broad terms allowing the landowner to recover input VAT.
The changes being considered include extending the ability of companies to revoke the election, the introduction of an alternative irrevocable election and amendments to the rules for groups.
Revoking the Option
- Cooling off period - the proposal is to extend the initial period for revocation from three to six months;
- 20 year revocation – the suggested conditions to be met when an option to tax is revoked after 20 years (the first of which will be possible from August 2009) are set out.
Irrevocable election
This is a new concept which will allow a business to be treated as opting every property in which an interest is acquired, thus helping to ensure that elections are not missed. It will be possible to notify HM Revenue & Customs that the election is not intended to apply to specific properties.
VAT Groups
Currently, an option to tax made by a member of a VAT group applies to all existing VAT group members and any companies which subsequently join the group, and continues to apply indefinitely to companies after they leave the VAT group, even if they do not have any interest in the property. As this has proved difficult to track, it is proposed that once a company leaves a VAT group, it will no longer be associated with other members of the VAT group for the purposes of any option to tax.
The new rules and the timetable for their implementation have yet to be finalised. To discuss how these proposed changes may affect your business, please contact Vaughn Chown using the online form below.